Pricey oil driving up cost of building new homes

Published: Friday, June 20, 2008

Alex Veiga

LOS ANGELES - As if homebuilders didn't have enough to worry about with plunging home prices and rising foreclosures, the surge in oil prices is driving up the cost of key construction materials and further eroding homebuyers' confidence.

Cases of roofing tar made directly from crude oil are seen at the America Roofing Supply Co. yard in Los Angeles. The wholesale cost of building materials for single-family new construction rose 3.4 percent overall in April from a year earlier.

Prices have gone up for steel, aluminum, copper, concrete, brick, asphalt and plumbing fixtures, among other materials, and homebuilders are feeling pressure from suppliers to foot the bill. In sum, the wholesale cost of building materials for new home construction rose 3.4 percent overall in April from a year earlier, according to the Labor Department.

"Any material that is petroleum-based or transportation-intensive will have pricing pressure during periods of rising oil prices," said Tony Callahan, senior vice president of Purchasing, Planning & Design for Atlanta-based Beazer Homes USA Inc. "Manufacturers are trying to push cost increases through for materials like asphalt roof shingles, carpet, insulation."

The price increases represent another hurdle for homebuilders, which already are reeling from 40 percent buyer cancellation rates and billions of dollars in write downs on undeveloped land. The companies are already struggling through the second year of a housing bust that some industry analysts say isn't likely to improve before 2010.

Earlier this week, two rating agencies slashed the debt ratings for several builders. So on top of higher material costs, the builders will have to pay higher interest rates if they need to borrow more money.